A 0.7 percent increase in prices for housing and household utilities contributed to the quarterly increase, with new housing prices up 1.2 percent, rentals increasing 0.6 percent, and a 1.5 percent rise in property maintenance services. Gas prices rose 3.3 percent in the quarter, and dwelling insurance climbed 6 percent.
Despite rising spending and consumer confidence, retailers are struggling to pass on price increases as yet, says ASB chief economist Nick Tuffey.
"We expect the RBNZ will hike in April, and then wait until July before following up. However, the risk of the RBNZ lifting the OCR in June rather than our July forecast is high," Tuffey said.
The Reserve Bank is closely watching the pace of inflation, having flagged increased price pressures as a reason behind its shift to tighter monetary policy this year. Governor Graeme Wheeler hiked the benchmark rate 25 basis points to 2.75 percent last month and is expected to lift the official cash rate another quarter-point next week.
Housing is a key concern for the central bank with increased building activity to lift supply in Auckland and the rebuild of Christchurch.
Housing and household utilities underpinned the annual lift in the inflation rate, with new housing prices up 5.1 percent, rentals up 2 percent, and property maintenance services increasing 5.1 percent. Dwelling insurance prices were up 21 percent in the year.
Energy prices rose 2.7 percent in the year, with a 2.9 percent increase in electricity prices and a 2.1 percent lift in gas prices.
That helped drive the annual pace of non-tradable inflation to 3 percent, the fastest since September 2011 when the impact of the government's hike in goods and services tax was still working through the data. Non-tradable inflation rose at a quarterly pace of 1.1 percent.
Tradable inflation, which covers goods and services facing international competition, fell 0.7 percent in the quarter for an annual decline of 0.6 percent. Tradable inflation has been shrinking on an annual basis since June 2012.
Prices for telecommunication equipment continued to fall, down 5.9 percent in the quarter, for an annual drop of 21 percent. That happened even as retailers reduced the amount of discounting to 16 percent of prices below the standard from 24 percent in the December quarter.
The price of household contents fell 0.8 percent in the quarter, with furniture and furnishings prices down 3.1 percent and the price of appliances falling 1.6 percent. On an annual basis, household contents and services price fell 0.2 percent, led by a 2.5 percent drop in the price of appliances.
Apparel prices extended their decline, down 0.7 percent in the quarter for an annual drop of 1.2 percent, with discounting of men's and women's clothing up in the March period.
Discounting across all retailers in the quarter was unchanged at 16 percent of below-par prices.
Read details of the latest Consumer Price Index here:
